Global spot pricing is weakening due to a slowdown in China, excess inventories, and ramping supply from low cost miners. While we like the new CEO and see value in shares if management sells high cost assets, we are not yet convinced efforts will be enough to keep shares afloat…

Under our base case of $100 iron ore (vs. $118 today), we believe Cliffs’ shares could be worth $5 under today’s cost structure and ~$17 under a deeper restructuring. With CLF shares currently trading at $19.55 vs. our $12-14 range we believe an Underperform rating is appropriate

It can’t just be iron-ore prices that got Cliff’s Natural Resources down. Its shares have dropped 27% this year, while Rio Tinto (RIO) is little change, BHP Billiton (BHP) has ticked up 0.7% and Vale (VALE) has dropped 7.9%.

Shares of Cliffs Natural Resources have dropped 2.1% to $19.14 at 3:27 p.m. today, while Rio Tinto has gained 1.2% to $56.45, BHP Billiton has risen 0.9% to $68.63 and Vale has advanced 0.8% to $14.03.

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There are 6 comments

MARCH 4, 2014 6:08 P.M.

Anonymous wrote:

Wow, what a piece. How long did it take you to throw this together? I put more work into my college essays. CLF is being manipulated _ maybe you've heard of such a thing. Do you know what the company's fair value is? Do you know how much CLF can generate even if prices fall to $100? Do you even know how much exposure CLF has in China? Barron's has become a rag, and I wouldn't listen to whatever it's so-called experts have to say on anything. In a year, CLF will be north of $40. What are you going to be saying then? Unreal

MARCH 4, 2014 6:08 P.M.

doug fernandes wrote:

Wow, what a piece. How long did it take you to throw this together? I put more work into my college essays. CLF is being manipulated _ maybe you've heard of such a thing. Do you know what the company's fair value is? Do you know how much CLF can generate even if prices fall to $100? Do you even know how much exposure CLF has in China? Barron's has become a rag, and I wouldn't listen to whatever it's so-called experts have to say on anything. In a year, CLF will be north of $40. What are you going to be saying then? Unreal

MARCH 4, 2014 7:17 P.M.

Greg wrote:

Do you realize that 65% of all CLF's iron ore sales are on long term contracts? They had an average iron ore sales price of $112 when iron ore was $135, they will have an average sales price of $110 if spot goes to $100. The truth is if iron ore prices fall, CLF is in a better position than its peers that sell strictly on spot. These analyst need to be able to read a complete filing of an income statement before they say something stupid like this.

MARCH 5, 2014 2:37 P.M.

Ironman wrote:

Cliff is under siege from a rogue shareholder who is forcing the share price down for his own interests

MARCH 5, 2014 10:57 P.M.

CashMcCall wrote:

Silly post; probably a hedge fund shill article. CLF is a true bargain. I have seen the prices of iron ore snap upward with a vengeance. CLF serves the rolled metal steel industry in the USA. Revenues are up even if margins are tight. CLF controls 60% of the US ore business.

This is a cyclical business in inflection. It is a screaming buy. The company's stock price has been falling with the iron ore spot market which is absurd since CLF has no significant dealings with the spot market. BY ever measure especially cash flow, CLF is undervalued by 35%.

Many of the article you read in Barrons are pump articles by hedge funds that are trying to drop the price in order to buy massive options. As with all material stocks, this is the trade of the year. Mark the words of Cash McCall. I have traded material stocks successfully for two decades. CLF should sell off some assets and try to improve margins. It is a known fact that Asian inventories are down and there is very little slack in the markets additionally aided by India's new tax on Iron ore. I highly recommend buying CLF and VALE and avoid the Australians. CLF and VALE are priced right. Vale pays a 6.3% dividend and controls 76% of the global market in iron ore. Imagine what the emerging market countries will look like in four short years. They will build massive infrastructure requiring heavy steel which is made in China and only a few other countries. In the USA we do not have a single blast furnace in operation. China has blast furnaces as far as the eye can see, and those beasts must be fed thermal coal and iron ore.

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